Q- As far as my Cayman Islands company doesn’t have US investors, does it have to register with FATCA?
A- Yes- The IGAs and the FATCA Regulations apply to all Cayman Islands Financial Institutions (“CFIs”), regardless of whether they hold any Financial Accounts for Specified Persons. (see research below).
Q- Does my company have to register with IRS for a Global Intermediary Identification Number (GIIN)
A- Exempt Beneficial Owners will not need to register for a GIIN (see section 5.4) however I don’t believe the exemptions apply.
Q- Does my company have to apply to the Cayman Tax Information Authority (TIA) via their AEOI portal?
A- Only if FATCA reporting is required. See below for more details
Q- Does my Cayman Company have to Submit AEOI returns annually as required by the legislation?
A- As per the FATCA reporting requirements, there are a number of exemptions and clauses that may relieve the return of AEOIs accordingly. With reference to the (The Cayman Mutual Funds (Amendment) Law (2020 Revision) and other FATCA guidance, we will look more in depth at this now.
Section 3. NON-REPORTING FINANCIAL INSTITUTIONS of the The Cayman Mutual Funds Law.
3.1. All Cayman Islands Financial Institutions will be Reporting Financial Institutions unless an exemption is provided in Annex II of the Intergovernmental Agreement (or IGA) to allow the Financial Institution to be treated as Non-Reporting.
Annex II of the US Agreement classifies certain legal entities as “Exempt Beneficial Owners” and “Deemed Compliant Financial Institutions”, which are collectively considered to be “Non-Reporting Financial Institutions”, as well as referring to certain excluded accounts.
Additionally, there are certain categories of Deemed Compliant Financial Institutions separately recognised under the US Regulations and these exemptions have been specifically imported into these Guidance Notes. Financial Institutions referred to as Registered Deemed Compliant will be obliged to register with the IRS and obtain a GIIN.
Financial Institutions referred to as Certified Deemed Compliant will not need to register with the IRS (excluding for certain limited exceptions). Rather than registering with the IRS, Certified Deemed Compliant Financial Institutions should self-certify with withholding agents to evidence their status and avoid the imposition of 30% withholding on US source payments.
Under US Regulations and sSection 1.1471-5(f)(2); “A certified deemed compliant FFI also includes any non-reporting IGA Foreign Financial Institution (or FFI). A certified deemed-compliant FFI is not required to register with the IRS”.
Accordingly, Deemed Compliant Financial Institutions are Financial Institutions identified as Certified Deemed Compliant under Annex II, or otherwise are eligible as Certified or Registered Deemed Compliant, or an Owner Documented Deemed Compliant.
Exempt Beneficial Owners and Deemed Compliant Financial Institutions have no reporting obligations in respect of Financial Accounts that they maintain under the US Agreement.
Such a Financial Institution that meets the following requirements can be treated as Registered Deemed Compliant:
What is the scope of Intergovernmental Agreements and FATCA Regulations?
The IGAs and the FATCA Regulations apply to all Cayman Islands Financial Institutions (“CFIs”), irrespective of whether they hold any Financial Accounts for Specified Persons.
Essentially under the new 2020 legislation, action will be required of all CFIs that maintain Financial Accounts. The extent of that action will depend on a number of factors including whether account holders are Specified Persons and the value and nature of the Financial Account.
A CFI is any Financial Institution organised under the laws of or resident in the Cayman Islands. For these purposes, organised under the laws of the Cayman Islands means the following:
Section 2.4. Non-Reporting Cayman Islands Financial Institutions
A Non-Reporting Cayman Islands Financial Institution is any Cayman Islands Financial Institution that falls within the exemptions set out the US Regulations or one which otherwise qualifies as:
A Deemed Compliant Financial Institution
Section 3.2. Registered Deemed Compliant Financial Institutions
The Registered Deemed Compliant categories noted in this section are inserted from the US Regulations. They should be considered in conjunction with the Certified Deemed Compliant categories noted in the next section, which arise largely under Annex II of the US Agreement.
A Cayman Financial Institution that qualifies as one of the Registered Deemed Compliant categories below will need to register with the IRS to obtain a GIIN, or be registered by another legal entity. These types of Financial Institution will not need to report, however details of Financial Accounts maintained by the Financial Institution may be reported by another entity entirely.
An Owner Documented Financial Institution
Section 3.4. Owner Documented Financial Institutions (US Regulations 1471- 5F)
This category is intended to reduce the burden of meeting the obligations under the Agreements for closely held passive investment vehicles that fall within the definition of Investment Entity. It is not however restricted to those cases.
In order to qualify under this category, the Investment Entity must satisfy the following:
Exempt Beneficial Owners of CFIs.
Section 5. EXEMPT BENEFICIAL OWNERS
5.1. General Entities regarded as Exempt Beneficial Owners (and therefore Non-Reporting Financial Institutions) and Excluded Accounts are set out in Annex II to the US and UK Agreement. This section sets out those entities and products that are treated as Exempt Beneficial Owners for the Cayman Islands, but this is not an exhaustive list.
5.2. Governmental Entities For the Cayman Islands this includes:
5.3. Retirement/pension funds
The following will be Non-Reporting Cayman Islands Financial Institutions for the purpose of the Agreements:
Exempt Beneficial Owners will not need to register for a GIIN.
5.4. Limited Capacity Exempt Beneficial Owners
An addition has been made to Annex II in the UK Agreement, by adding a new 52 section, “Limited Capacity Exempt Beneficial Owners” at Annex II.I.G under Additional Entities.
This new section ensures that the Controlling Persons of a charity shall be treated as Exempt Beneficial Owner solely in their capacity as a Controlling Person of that charity, therefore removing the requirement to ‘look through’ the charity to the Controlling Persons. This brings the treatment under the UK Agreement in line with the treatment under the US Agreement.
Annex II Non-Reporting Cayman Islands Financial Institutions
The following Entities are exempt beneficial owners and are treated as Non-Reporting Cayman Islands Financial Institutions.
Limited Capacity Exempt Beneficial Owners.
The Controlling Persons of an NFFE that meets all of the following requirements shall be treated as an Exempt Beneficial Owner solely in their capacity as a Controlling Person of that NFFE:
Legal Sources Cited
US Regulations: 1471- 5(f)(3)